O2 chief Ronan Dunne defends his corner in spectrum debate

Ronan Dunne is keen on facts – or "fact packs" as he likes to
call them. For the chief executive of O2, they are all you need to solve the
thorny spectrum debate. The only trouble is that no one else seems to agree.

"The facts are a matter of record. But what we have at the moment is a spurious debate where we are negotiating the facts," he says, with a warm Irish lilt and open manner that does not manage to conceal his frustration.

Part of the confusion is down to partisan lobbying by the various mobile operators, he says, but they are not the only ones getting the details wrong.

For starters, there are the politicians, Dunne argues.

Ofcom delayed its auction of fourth generation spectrum after O2 threatened legal action because it would grant rivals "state aid", prompting some MPs to lay the blame at the door of the mobile operator, but Dunne doesn't share their view.

"That's so factually inaccurate. Roll back to the facts. The first fact is that spectrum doesn't get cleared until the back end of 2013 so anyone suggesting that the perceived bickering between operators has in any way slowed up UK PLC from delivering a digital solution by one day is just factually incorrect," he says.

Ofcom, as well, has room for error. As Dunne points out, the operators "are actually the specialists in this stuff, not necessarily the regulator, so it is wholly appropriate that [Ofcom] should be open to some real empirical evidence to help their fact pack."

That "empirical evidence", as we have already established, is pretty tricky to pin down because none of the operators can agree. No wonder this whole auction debate is protracted.

But Dunne's air of indignation does not come unbidden. After all, O2's rivals – Vodafone, Orange and T-Mobile operator Everything Everywhere, and Three – have all been putting the boot in, so why shouldn't he?

After all, there is a huge amount at stake. The spectrum auction, when it does go ahead, will ultimately determine which of the big four operators will be best positioned to capitalise on a surge in smartphone use and will be vital when plotting each company's growth potential.

It is something Dunne knows only too well: "Spectrum is a scarce resource. Unless we redefine the laws of physics we have what we have, and as such we need to husband that asset very carefully, as an industry and as a country. It's not realistic to have unlimited unmanaged traffic on a network."

As such, he is piqued by rivals that take a different approach – namely Three, which is complaining that it is about to run out of spectrum at the same time as it increases market share with cut price offers for unlimited data.

"Why would you give everyone unlimited data if you don't have the capacity to deliver?" says Dunne. "Does Three believe it is putting the Government in a position where it needs to do something for the network?"

He is also angry about the prospect of a windfall for Everything Everywhere, should it get to keep the proceeds from the 25pc of its 1800MHz spectrum it was ordered to sell as a pre-condition of the Orange-T-Mobile merger:

"If there is state aid in the proposal Ofcom comes out with, it won't be going ahead. Even if I didn't take them to court, someone else will," he warns.

Arguably, the spectrum question became even more pressing for Dunne on the back of O2's third quarter performance announced on Friday, where data revenues were the only clear bright spot in a lacklustre set of results.

O2's average revenue per user fell 5.7pc over the nine months to September 30, as a 6.1pc rise in data revenues softened a painful 13pc fall in income from voice calls.

The operator, which has long been envied by its rivals for unparalleled customer loyalty, also saw a slowdown in growth in the number of users on lucrative contracts. It slumped from 150,000 so-called "net adds" in the first quarter this year to 71,000 in the third quarter - less than half the growth of Vodafone and Everything Everywhere.

José María Álvarez-Pallete, Telefónica Europe's new chairman and chief executive, claimed the results showed "fresh commercial momentum" in a "challenging environment", but others were less kind.

One of its rivals suggested that O2's "bubble had burst". Its apparent slip also raised fears that Telefónica, which owns O2, is putting its business in other territories ahead of the UK when it comes to investment in growth.

Problems in Spain, the group's home turf, pushed Telefónica to a quarterly loss for the first time in nearly a decade, partly because of a €2.7bn (£2.3bn) restructuring bill but also because of a 10pc decline in service revenues which Mr Álvarez-Pallete said showed no signs of short-term improvement.

O2 is a very steady business by comparison.

But it would be unfair to herald a change in the pecking order of operators just yet. One of the reasons that O2 has historically kept customers over the long term is its loyalty scheme, which gives users early access to concert tickets or to exclusive areas at rugby matches, for example.

More recently, O2 launched "Priority Moments", another scheme which allows smartphone customers to access offers based on their location. As well as a loyalty initiative, it gives O2 significant leverage with advertisers.

"Our ambition is that every self-employed businessman has access to the same capabilities as a national brand, so if you've got a local cafe you can go head to head with Caffe Nero.

"But it's also about yield management. It's a butcher in Weybridge popping out a promotion so that he doesn't have to dump his steak on the Sunday."

The scheme is still in its infancy, but could come into its own when the much anticipated mobile advertising industry finally takes off.

Adverts are already sent to customers' handsets on a piecemeal basis, but O2, Vodafone and Everything Everywhere have drawn up plans for a joint venture to act as a "one stop shop" for advertisers and supercharge its progress.

The project – which does not yet have a name, other than the working title Oscar - has yet to clear regulatory hurdles, but if this tripartite effort is where O2 is pinning its hopes for the future, it might be time to set aside some of those differences within the mobile industry.